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China intends to borrow technology from IBM technology to against the United States technology produ

Author:Max lin

Release on :2016-10-31

HONG KONG — Shen Changxiang, who once supervised the cybersecurity of China's strategic missile arsenal and spearheaded computer-security research for the navy, has warned of the perils of his country's reliance on American technology.

Yet in December, the 74-year-old former military engineer, one of China's top-ranking cyberofficials, quietly started working with a company synonymous with American technological prowess: IBM. Shen's task is to help a little-known Chinese company absorb and build upon key technologies licensed by IBM, according to a statement posted on a Beijing government website.

In the past 16 months, IBM has agreed — and received permission under U.S. export laws — to provide the Beijing company, Teamsun, with a partial blueprint of its higher-end servers and the software that runs on them, according to IBM announcements and filings from Teamsun. As the chief scientist overseeing the IBM project on behalf of the Chinese government, Shen is helping Teamsun — and, in turn, China — develop a full supply chain of computers and software atop IBM's technology.

The goal is to create a domestic tech industry that in the long run will no longer need to buy U.S. products, thus avoiding security concerns.

What IBM is doing in China is no different from what the company is doing elsewhere. Yet IBM's activities in China have become sensitive as they now run into efforts by the Obama administration to persuade Beijing to drop new measures requiring U.S. companies to hand over technology in exchange for market access.

Critics say IBM is caving in to Chinese demands, placing short-term business gains ahead of longer-term political and trade issues. IBM's actions may spur other U.S. companies to break ranks and also submit to the new Chinese regulations, out of concern that IBM will get advantages by cooperating with the country.

“People do feel angry about what appears to be an accommodation with the Chinese,” said James A. Lewis, an analyst at the Center for Strategic and International Studies. “And you have to kind of expect that, particularly at a time when you have the whole U.S. government ginned up to push the Chinese on this.”

IBM said it was simply being open with licensing technologies as part of a global program called Open Power. Open Power, which IBM initiated in 2013, has 120 members worldwide, including Google and Samsung Electronics. Fewer than 20 are from China, IBM said. The point of the program is to provide base technology that can be enhanced by licensees worldwide and spur global partnerships and business opportunities, the company added.

“Our Open Power partners in China are getting access to the same technology that we make available to all Open Power members around the world,” Edward Barbini, a spokesman, wrote in an email. “We've been very transparent with all our stakeholders on this strategy, including the Obama administration, about our plans to expand both the Open Power community and IBM's technology partnerships around the world.”

In a recent interview posted on Teamsun's website, Huang Hua, a vice president, said the company's new capabilities would help it better address security concerns of local Chinese companies. Calling a movement in China to replace crucial high-end technology from IBM, Oracle and EMC an “opportunity,” Huang said Teamsun's strategy to “absorb and then innovate” would enable it to eliminate the capability gap between Chinese and U.S. companies and create products that could replace those sold by firms in the United States.

Language about replacing IBM, Oracle and EMC was removed from the site after Teamsun and IBM were contacted for this article. Teamsun declined to be interviewed about the IBM project, and an assistant declined to make Shen available for comment.

IBM declined to comment on Shen because he is not an IBM employee. A spokesman with the U.S. trade representative declined to comment on IBM's strategy in China.

IBM has many business projects in China. The company has also agreed to license the advanced chip technology that works as the brain of the servers to a separate Chinese company, Suzhou PowerCore. And IBM says it has spoken to clients about letting them build local encryption over its z13 mainframe computer, which could help in China, where a proposed anti-terror law requires domestic companies to provide encryption keys or use local Chinese encryption standards.

IBM's cooperation with Teamsun and Suzhou PowerCore through Open Power is part of the company's strategic shift away from its traditional hardware, software and services businesses to new cloud, data and mobile offerings. IBM, which reports quarterly earnings on Monday, has been grappling with declining revenue as it makes that transition.

Both the server and chip technology IBM is licensing in China are widely used by banks in the country. In the fourth quarter, IBM generated $4.9 billion in revenue, or 20 percent of the total, from Asia; it does not break out China sales.

“You have Chinese policy interests, U.S. policy interests and IBM policy interests; realistically, your hope of aligning these is not all that high,” said Willy C. Shih, a professor of technology and operations management at Harvard Business School. “I think it's a tough call for IBM.”

While Beijing has long pushed indigenous innovation policies designed to foster a domestic tech industry, the disclosures in 2013 of online spying efforts by the United States made by the former National Security Agency contractor Edward Snowden gave the more hawkish officials in China the evidence they needed to expedite plans to wean sensitive industries, like banking and energy, off foreign technology.

One new Chinese law, which called for disclosure of source code of products sold to banks, was suspended by the government this month. But analysts say Beijing is likely to continue making similar demands in different ways.

Shen has been thinking about pushing U.S. tech companies out of China for a while. In 2009, he warned of global communications surveillance by the United States in an essay posted on the website of China's Ministry of Industry and Information Technology.

In a speech in September at the China Internet Security Conference in Beijing, Shen said expansion of the U.S. military's online attack and defense capabilities made the Internet the fifth strategic front for the United States, after land, air, ocean and space.

He added, according to state-run media, “That poses a severe challenge to the cybersecurity of China, and we should actively respond, accelerate the building of our cybersecure system and safeguard our cybersecurity and state sovereignty.”